AMD announced on Monday its plan to acquire ZT Systems, a company specializing in designing data center equipment for cloud computing and artificial intelligence, for $4.9 billion, challenging NVIDIA's dominance in the AI computing sector.

Media reports indicate that the transaction will be completed through a combination of stock and cash, with AMD intending to pay 75% of the ZT Systems acquisition in cash, and the remaining portion in stock. This also includes a conditional payment of up to $400 million, which will be paid upon the achievement of certain targets post-acquisition.

Analysts have stated that the demand for artificial intelligence computing necessitates tech companies to link thousands of chips into clusters to achieve the required data processing capabilities. Linking a vast number of chips implies that the composition of the entire server system is becoming increasingly important, which is also the reason behind AMD's acquisition of ZT Systems. AMD hopes that through the acquisition of ZT Systems, it can offer a broader range of chips, software, and system design products to large data center clients such as Microsoft and Meta, promising to enhance performance through the tight integration of these products.

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Headquartered in Secaucus, New Jersey, ZT Systems was established in 1994 and is currently privately held. The company designs and manufactures servers, server racks, and other infrastructure used to house and connect chips in massive data centers that support AI systems like ChatGPT.

Financial reports show that the company's annual sales exceed $10 billion, which is nearly half of AMD's reported revenue of $22.7 billion last year. However, AMD plans to sell ZT's manufacturing business after the acquisition is completed, retaining its system design business.

AMD CEO Dr. Lisa Su stated that the greatest value ZT brings to AMD is the ability to provide more direct assistance to customers, enabling client enterprises to build massive data center clusters for training AI systems. The addition of ZT Systems engineers will enable AMD to test and launch its latest AI GPUs more quickly, meeting the needs of large cloud computing companies like Microsoft.

"I can now tell customers, 'Let me help you build your next training cluster, tell me what you think is important. I now have a very large design team that can help you do that,'" said Dr. Su.

AMD stated that the transaction is expected to be completed in the first half of next year, subject to regulatory approval, and it anticipates an additional 12 to 18 months to sell the manufacturing business. ZT CEO Frank Zhang will remain in his position after the acquisition and will report to AMD's data center head, Forrest Norrod. Zhang expressed that joining AMD will help ZT "play a greater role in designing AI infrastructure that defines future computing."

Analysts believe that this transaction may enhance AMD's competitiveness against NVIDIA, which has also been actively increasing its data center products in recent years. For instance, NVIDIA acquired networking company Mellanox for nearly $7 billion in 2020, bringing supercomputing-level data transfer capabilities and helping it maintain an advantage in the AI boom. Additionally, NVIDIA has been increasingly focusing on the design of servers and data centers.

In recent years, AMD has also taken other measures to strengthen its data center capabilities, including the acquisition of chipmaker Xilinx in 2022 through an all-stock transaction, which was valued at nearly $50 billion at the time. Also in 2022, AMD acquired data center chip and networking startup Pensando Systems for $1.9 billion.Although NVIDIA has been a major beneficiary in the chip industry during the AI boom, AMD is also making gradual progress. Last month, after reporting better-than-expected quarterly results, AMD raised its forecast for AI chip sales this year to $4.5 billion, up from the $3.5 billion forecast in January.

This ZT transaction is one of AMD's largest deals following the acquisition of Xilinx and the $5.4 billion purchase of ATI Technologies in 2006. AMD announced a smaller AI-related transaction last month, acquiring Silo AI, a Finnish company that helps clients integrate artificial intelligence into their products and operations, for approximately $665 million.

Following the news of the acquisition plans, AMD's stock rose by 2.45% during Monday's trading session, closing at $152.20.